Financial planners should not be swept up in the competition among various types of super funds, but focused on providing clients with the best possible solution, according to super industry consultant Tom Collins.
Further, if industry funds want to look after the interests of members they shouldn’t frustrate financial planners’ access to members’ details, Collins says. Neither the super fund nor the adviser owns the members so neither has the right to frustrate the other, something which is a regular occurrence.
“If industry funds want to bad mouth master trusts and master trusts want to bad mouth industry funds, that is their fight and financial planners should be above that fight”, says Collins, who is a director of a trustee board of a retail master trust and is also associated with an industry fund that provides dial-up fees for financial planners.
“Planners have to provide clients with the most appropriate solution – whether that’s industry funds, retail master trusts, corporate super or DIY funds.Advisers shouldn’t have to be a slave to one particular provider. That is where we have to get the debate to. To me, industry funds have to recognise that financial planners have a legitimate and important role to play in the advice of super because a financial planner looks at clients’ holistic situation and puts their super solution in that context. Whereas if it’s only the super fund that is helping the client, then it will be biased towards providing a super solution.”
In a recent conversation with an adviser, Collins was told that even though an industry fund member had given their adviser written authority to seek information from the industry fund, the fund refused to provide details. “What right did they have to do this? The member owns their own information in my view”, he says.
“I think industry funds are afraid planners will cherrypick their members. It happens. It is fact. In some ways, their fears are justified. But my view is you don’t react by obstructing what the member wants. I think the smarter view would be to engage with advisers.”
ARE ALL PLANNERS EQUAL
Collins poses the following: for the same reason industry funds are critical of financial planners, will planners on the payroll of industry funds be brave enough to recommend a different fund if in the interests of their client? Grahame Evans, the managing director of dealer group Professional Investment Services, believes there is a need to work with each other. Evans regards industry funds as another option to meet the needs of clients. There are about four industry funds on its approved product list. “I think there is a fair amount of misinformation. Everyone throws rocks at each other. We have a number of industry funds that receive funds from clients of our advisers. We work with lots of accountancy practices in our group who have a lot of clients who have industry funds or their clients’ employees use industry funds. It is horses for courses’ Evans says.
Evans has called for more open discussion, saying the general view that all planners are out to leech every dollar from clients is short-sighted. Equally short-sighted is the view that industry funds are being run only for the benefit of management. “That industry funds are the mutuals of the future – that is what is being put around the marketplace. We know how successful the mutuals were. When AMP and National Mutual had a market-share war, there was no shareholder to hold them accountable, only policyholders. The marketplace is saying that industry funds will end up in the same situation. This is where there is misinformation on both parts. Getting people together to talk through some of these issues would be a good outcome, Evans says.
With planners leaning more towards a fee for service, he says it will be irrelevant where people place their funds. He sees industry funds as a form of platform and believes if they want to be on PIS-approved product list then they need to go through normal research channels, which they have been reluctant to do. “It’s not cheap for any fund manager or platform to go through that research process”, he says. “Industry funds are prepared to put up their performance statistics to say ‘aren’t we doing well’, but are not necessarily prepared to put up their processes and have them researched by appropriate researchers.
As a licence holder that makes it difficult for a business like PIS to provide advice on them and I think that is where AMP got into most of its trouble. “As a licence holder, we have a research process we follow. To provide advice on any investment, it must be in our research process and we must be able to provide information on that investment. It doesn’t necessarily have to be on our approved product list but we do have to have access to research on it.”
CENTRALISING SUPER
Statewide Superannuation Trust CEO Frances Magill believes there should be a central system where all funds are accredited rather than each individual planning group having to do its own independent evaluation. “The Government could do it through an accredited process, such as Morningstar. For example, every product that has two stars or higher could legitimately be used by a planner. There needs to be some solution. It is really difficult for funds like ours to get on anyone’s accredited list. A fund has to pay to be on the list and it is quite expensive.” Magill says.
Statewide has planners as a value add, but does try to use external planners because it recognises that, with members all over Australia, they do need to see their planners face to face, rather than over the phone. Count Financial has no industry funds on its approved list. Normally, if a client with an industry fund sees one of its advisers, the decision on whether to stay in that fund or change is made after an assessment by head office. But working on a case-by-case basis is a costly and onerous exercise, according to CEO Marianne Perkovic. So a new approach was needed. “Our frustration has been the lack of research and information available to make that decision to stay in that industry fund”, Perkovic says. “We are a few weeks away on making a decision to select one research provider for industry funds.
Then we have a policy overlay to help give the adviser further guidance when comparing the different funds to make a recommendation to the client. “It has taken about eight months to come up with a solution and it has been very frustrating for us and advisers. We just want to do the right thing by the client. Industry funds still won’t come as an approved provider but if a client has an existing industry fund now, we are aiming to give the adviser the tools to form a basis for the recommendation to give the advice.” Collins is concerned some industry funds say they provide free financial planning advice, which is ‘misleading’ because of who pays the wage of the planner. “Surely, the industry funds planner is paid and somehow that money must have come out of the funds accounts”, he adds. “What is fairer: for all members to pay for a select few to get financial planning, to get ‘free’ financial planning or those members who get the financial planning to pay for it individually?
The sole purpose test allows for a fee for a member to receive super advice to be deducted from their account, so why are some industry funds against this more equitable approach? Public offer industry fund Hostplus, which uses Industry Fund Financial Planning on a fee-forservice basis, is making changes on the financial planning front. “It’s a misnomer that some of our competitors may be of the view that we don’t believe in the merits of financial advice”,; Hostplus CEO David Elia says. “We believe it is an important element.”
NO FREE ADVICE
Advice is so important that next year the innovative Hostplus is creating a value-add mechanism to allow Industry Fund Financial Planning to deduct the cost of super-only financial advice from members’ accounts. “There will be a lot of rules around the option. There will be no commissions and it will be a capped annual fee of no more than $450 for one-off advice”, Elia says. “I suspect we are one of the few industry funds that will move to this type of approach. We are taking a completely different approach in offering this service and charging members for it. We need to make sure members’ accounts are not eroded by ongoing commissions. That’s why we will have limits and caps. If they get additional advice, they would need to pay for it. But we believe $450 should provide all the advice members would need in relation to their super arrangements.”
Elia has held discussions with other financial planning networks. “I think they are interested in learning about industry funds and we are interested in learning about the financial planning world”, he says. “We will stick at this point in time with Industry Fund Financial Planning, but we are not closing the door. You can never dismiss anything. We want to try to track members’ attitude who take up the new option. We want to make sure we can provide this service in an efficient manner. I don’t discount a future review and maybe expanding it to potentially include other dealer groups.”
